Wednesday, 29 January 2014

In an
interview on this blog last
year, Hjalti Hrafn Hafthorsson of the Icelandic organisation Alda, put the case for an intrinsically
different kind of economy. Companies, he argued, should be run as
worker-controlled enterprises not as shareholder-owned entities managed by
small boards of directors. With decisions guided by what employees want, rather
than the legally prescribed imperative of maximising profit that determines
current corporate behaviour, outcomes would be radically altered. Wealth would
be more evenly distributed, companies would reflect what communities wanted and
monopolies less likely to be formed.

“I tend to believe,” Hafthorsson concluded,
“that if working people were voting on some of the decisions made by corporate
executives today many of those decisions would be overruled because people in
general have values that aren’t measured in dollars or pounds.”

Alda’s
vision of “economic democracy” is seen by many as a cure for the problems that
plague society - inequality, stalling wages, environmental degradation, the
dominance of large firms (in the energy ‘market’ for example) that exploit
their captive consumers and companies’ footloose relationship with the
communities that host them.

This means
not merely a different way of reaching economic decisions, but the death of the
shareholder. Workers, not wealthy investors or pension funds, would own as well
as govern firms. It has been argued that the wider community should be
represented on company boards, not just the workforce. Either way, what you have
is an economy ostensibly geared towards the public interest, not private
profit.

Taken
together with the burgeoning movement for a basic, unconditional income, you
can see the rudiments of an economy that values people, as opposed to things or
profit. An economy, in other words, that treats people not as means to an end -
economic survival and profit - but as ends in themselves, and gives them the
freedom, and material security, to decide what is right for them.

“The
difference, of course, is that we wouldn’t have capitalism anymore,” says
Hafthorsson. But are these really the ways to transcend capitalism, or will we
still be caught in its web?

There are
some who think escape not so easy. The American Marxist, Andrew Kliman, looks upon capitalism as a network
of relationships governed by immovable laws. You cannot simply “overrule”
decisions because you don’t like them. It doesn’t matter, in this view, who is in
charge or what their values are – whether they are money-grubbing psychopaths
obsessed with profitability, or managers elected by the workforce, concerned
above all else with the welfare of fellow employees and the effect of decisions on the
wider community. Kliman is adamant that:

“Directives will not break the laws of capitalist
production. The most important law is the determination of value by labor-time.
It compels an enterprise, whoever owns or 'controls' it, to minimize costs in
order to remain competitive, and therefore to lay off inefficient or
unnecessary workers, speed up production, have unsafe working conditions,
produce for profit instead of producing for need, and so on. If you are in a
capitalist system, you cannot just issue a directive to produce for need, or a
directive to refrain from laying off workers. Cutting costs is the key to
survival.”

The
disagreement as to what is and isn’t possible ultimately stems from contrasting
definitions as to what capitalism is. Alda’s “economic democracy” stance reflects
philosopher David Schweickart’s definition.
Capitalism take places in the familiar “market economy”, yes, but the decisive
characteristic, to Schweickart, is that it is based on wage labour. This means
the vast majority of people have to rent themselves to the small minority that
own companies, shops or offices in order gain the livelihood – the wages, salaries or fees – that enables
them to have a reasonable standard of life and not frequent food banks. Their
need of an income means they are compelled to subject themselves to
undemocratic rule at work and the baleful consequences of inequality, the
dominance of huge firms and a lack of concern of external effects on society
and the environment. The solution is to end the division between the elite that
owns “the means of production” and the millions of people one or two payslips
from bankruptcy. When workplaces are democratised, the argument runs, the
behavioural characteristic of firms will change and seemingly intractable
problems will become tractable. Values not “measured in dollars or pounds” would
predominate. But this is decidedly not about the abolition of profit or
competition. Profit will remain, it’s just that the people who receive it will
alter.

Another way
of describing this transformation is that it aims at the ‘democratisation of capital’.

However, to
Kliman, this is based on a fundamental misconception of what capitalism really
is. “Capital,” he writes, “is nothing other than value that is invested in
order to end up with more value, so the fact that products have value is part
and parcel of capitalism as such, no matter what its forms of property and
institutional structures may be.” You can turn the institutions - the
workplaces and corporations that overshadow our lives - upside down, you can
put the people, not the corporate executives in the saddle, and nothing
fundamental will change. Because any firm operating in a competitive economy
will be drawn, however unwillingly, into the “grow or die” mentality that
exists all around it, workers in a worker-controlled company will end up
exploiting themselves.

You need do
“do away” with capital, Kliman insists, and that requires doing away with
commodities and the production of commodities. Given that most people –
Marxists included – don’t think people should just live on the potatoes and
onions they have planted in the back garden, he must be referring to a special
quality in “commodities” that separate them from consumer goods. But more of
that shortly.

Kliman’s firm
belief is that, in a capitalist society, institutional forms don’t matter. However
hard they try not to, everyone has to swim with the current. In this, I think
he is partly right. Non-shareholder enterprises do, I believe, behave
differently, but not differently enough. In Britain, for example, you can see a
glaring disparity in the way consumers are treated. The traditional
shareholder-owned companies dominant in energy and water provision since
privatisation in the 1980s, have engaged in crass profiteering. Electricity
prices have shot up by 120% and gas prices by 190% in the last decade. Welsh Water, by contrast, which
has been run as a social enterprise without
shareholders since 2001, has reduced bills every year for seven years. The
nationalised Scottish Water, is into its fourth year of a price freeze. Railways
in the UK
paint a similar picture. Private train companies have, in the context of
burgeoning taxpayer subsidy, made an enormous return of 147% for every pound invested, but when the state is
inadvertently put in charge of a rail-line, the taxpayer subsidy miraculously drops. The British National
Health Service, in its heyday, exemplified the primacy of need over the bottom
line.

Gar
Alperovitz in America Beyond Capitalism,
argues that the price advantage displayed by municipally-owned electricity
utilities in the US “is due to the fact of public ownership itself; locally controlled public utilities often can be especially responsive to customers' needs and do not need to pay dividends to private shareholders.”

However,
all these instances occur in cases of non-competitive monopolies or without
direct competition for market share. When competing in a market against shareholder-owned
competitors, social or state-owned or worker-controlled enterprises have much
less freedom. The record of the famed worker cooperative corporation in
Mondragon in Northern Spain, illustrates both
how worker-run coops are an advance on the capitalist model, but also, in
important respects, ape it. In Mondragon, we have, not an isolated divergence
from capitalism, but Spain’s
seventh largest company. Mondragon comprises 256 businesses that generate $4.8
billion a year in manufacturing, retail and distribution. It boasts 43 schools,
one university and more than 80,000 employees.

As this
analysis demonstrates, in stark
contrast to the towering edifices of economic dictatorship and inequality that
surround us, Mondragon is a beacon of democracy and egalitarianism. It operates
on a one worker one vote basis, and each worker’s vote in the Mondragon general
assembly, controlling production, income distribution and the election of the
board, carries the same weight. The Mondragon CEO earns only nine times the
federation’s lowest paid employee. Economic downturns are not met with
automatic lay-offs. Mondragon members are more likely to vote for pay decreases
in order to spare unemployment.

“In
contrast to most capitalist companies, whereby the measure of a successful
company is almost always based on maximum profitability, the cooperative
approach offers an alternative that supports democracy through an egalitarian
voting system, while at the same time promoting job security for
worker-members, social justice and community responsibility,” say authors from
the Center for Social Epidemiology, of Mondragon.

But this is
not the whole story. While Mondragon embodies these undoubted advances, it has also
expanded into other countries – Mexico, Morocco, Egypt, Argentina, Thailand and
China, for example – in much the same
way that a capitalist company might and, significantly, its international
workforce have not been offered cooperative membership. Roughly a third of
Mondragon’s workers are not members of the coop. And, after trying in 1960s to
adopt alternative manufacturing processes, Mondragon now incorporates familiar
capitalist practices such as just in time inventory and shift work.

What this
indicates, I think, is that it is very difficult to make worker cooperatives
universal – to expand them without ensuring, at the same time, that a sizeable
chunk of the population remains outside them. And also that cooperatives will inevitably
respond to outside competition. There is no way to ensure that even a worker’s
coop that is an exemplar of internal democracy will not vote to gain an edge
through the introduction of ultra-competitive practices, thus compelling other
cooperatives to follow suit, to grow or die.

Kliman
would say that these inescapable flaws mean you have to “do away with”
capitalism and markets, or,
alternatively, that capitalism, the process of adding value through the sale of
products, inevitably entails markets and you cannot have one without the other.
That is what he means by commodities, the selling of products and the
reinvestment of the profit made through that sale, as opposed to the neutral
designation, ‘consumer goods’. But lesson of 20th history seems to indicate
that you can’t abolish capitalism and markets, without entering a nightmare realm
of central planning and total state domination. Kliman refers to the “horrors
of state-capitalism that called itself ‘communism’” so he clearly doesn’t want
to go back to that. He also says “we have to work out how we can have a modern
society that operates without the laws of capitalist production being in
control”. By “modern society” he seems to mean a society with a myriad of
consumer goods and conveniences but lacking the compulsion or necessity to
make a profit from these goods; to turn them into commodities. Is this an
impossible dream? Is economic democracy within some form of regulated market,
the best we can hope for? Can you really abolish capitalism? I would like to
consider these questions at some point when I have the time.

Thursday, 9 January 2014

From
outside, Marxism can appear an ideological monolith. Workers, so the story traditionally
goes, involuntarily supply their employers with surplus value and watch as the capitalists’
wealth exponentially increases, while they themselves get poorer. Through some
combination of the working class overcoming their false consciousness and
getting wise to the real situation and the unavoidable instability and
crisis-prone nature of the capitalist economic system, the crunch will come,
revolution will result and everyone will live happily ever after now that class
distinctions have been abolished. Amen.

The truth
is more complicated. Marxian economics - and it is economics that Marx was
fundamentally concerned with - is a much more contested field that you would
imagine. Two recent books by American Marxists, The Endless Crisis by John Bellamy Foster and Robert McChesney and
Andrew Kliman’s The Failure of Capitalist
Production illustrate the dissension.

At stake is
what causes economic crisis, more importantly, this economic crisis. Is it a growing gap, as Bellamy Foster and
McChesney maintain, between the endless production of goods and services and
workers’ finite ability to consume them, leading to stagnation? Or, as Kliman
says, the decline in the rate of capitalists’ profit, leading to stagnation
(alright, they do agree on some things).

Monopoly capitalism

We live,
say The Endless Crisis authors, in a
society dominated by very large monopolistic and oligopolistic corporations, a
trend which is only exacerbating through constant mergers and acquisitions. The
power of these giant corporations means they are able to extract more and more
profit (or in Marx-speak, surplus) from their workforce; profit that needs an
outlet and can’t all be absorbed by the consumption of wealthy investors. The
trouble is demand can’t keep up; the value of real wages in the US is lower
than it was in the 1970s. The result is slow growth and unused capacity – one-third
of the capacity of the US
automobile industry was unused in the run-up to the Great Recession, for
example.

In these
circumstances, speculative finance becomes irresistibly alluring, as the only
way to effectively deploy all the money that is being made. The portion of US national
income devoted to finance, real estate and insurance, say Bellamy Foster and
McChesney, has risen from 35% in the early 1980s to over 90% now. But the
escape promised by financial baubles like mortgage backed securities or credit
default swaps is illusory because they make crashes, like the one in 2008, far
more likely.

And the
promised escape is actually a trap because, once a crash has happened, the
political authorities can think of nothing but reinstalling the old casino
economy because they regard the ‘real economy’ as irretrievably stagnant. Think
of the UK
economic recovery, based on near zero interest rates and rising house prices.
“Rather than overcoming the stagnation problem,” write The Endless Crisis authors, “this renewed financialization will
only serve at best to put off the problem, while piling on further
contradictions, setting the stage for even bigger shocks in the future.”

What does
stagnation mean? It means lower wages, stalled careers, unemployment and
under-employment, lack of social mobility and periodic economic instability.
The authors quote older economists Paul Sweezy and Henry Magdoff, who, writing
in the late ‘80s, reflected on their formative experiences of fifty years
before: “For us economic stagnation in its most agonizing and pervasive form,
including its far-reaching ramifications in every aspects of social life, was
an overwhelming personal experience” But this is not the same for people who
grew up after the Second World War. “Under these circumstances,” they wrote, “they
find it hard to relate to what they are likely to regard as our obsession with
the problem of stagnation. They are not quite sure what we are talking about or
what all the fuss is over. There is a temptation to say: just wait and see,
you’ll find out soon enough.” We are now finding out.

Not quite recession

In one way,
Andrew Kliman doesn’t disagree with this prognosis. He, too, thinks we live in
a “new normal of not quite recession” and the future of the economy is likely
to be stagnation, interrupted by crashes. But, in another, he disagrees profoundly. For he traces the problems back to a completely different source, a
fall in the rate of profit. To Kliman, problems of “effective demand” (the
expression is from Keynes) are a red herring. Demand hasn’t fallen and, even if
it had, it wouldn’t matter. This is a complete reversal of standard left-wing
economic thinking which says that companies are compelled by competition to
introduce new technologies and cut costs, thus precipitating an ever-widening gap between supply and demand.

It’s fair
to say Karl Marx’s theory of the tendency of the rate of profit to fall is
commonly thought of, if it is thought of at all, as a historical curiosity. Or
just plain wrong. Many Marxist and radical economists were convinced that the
Japanese economist, Nobuo Okishio, had proved its falsity in 1961. Needless to
say, Kliman says he did no such thing.

This is how
the theory goes. Marx said that all value is created by labour. But as
mechanisation proceeds and edges out work performed by people, value or profit
decreases. Eventually this fall in the rate of profit causes a crisis. If – and
this is the important part – the destruction of capital value caused by this
crisis through bankruptcies, companies going bust and unemployment, is allowed
to happen unimpeded, the whole process can begin afresh. It becomes much
cheaper to buy companies and rate of return on profit resumes at a new peak. A
new boom ensues.

Even if
they don’t explicitly reject the theory, many Marxists say profit isn’t
falling. The Endless Crisis authors
say that the rate of profit fell during the nineteenth century under conditions
of competitive capitalism but it has risen since as monopolistic corporations
have ruled the roost. Indeed the rising amount of profit or surplus is a prime
reason for the crisis because it is diverted into speculation, having nowhere
else to go. Probably the most famous contemporary Marxist, Richard Wolff, says profit has gone wild in the US
as a result of falling wages.

Capitalism hasn’t
changed

Kliman says
this is all mistaken.
“Capitalism has changed far less than many people – its critics as well as its
supporters – want to think,” he writes. The rate of profit has fallen, though
this has been masked, initially by inflation and then by the fact that
economists used the wrong measure of profit. Kliman says radical economists,
for some reason, measure profit by what it costs to replace machinery as
opposed to the more common sense method of judging the rate of return on
advanced capital.

Not since
the Great Depression of the 1930s, says Kliman, has there been a free market
response to an economic downturn. Every subsequent downturn has been washed
away with government subsidies and debt guarantees. This ensures that the
downturns have not been half as severe as they otherwise might have been but
also that there could be no resultant boom because capital value was not
destroyed. The US
economy, he says, has never properly recovered from the recession of 1974. And
because of this the rate of profit has continued to fall, and is reflected, in
a delayed fashion, in increased debt and financial speculation.

Kliman’s
explanation does differ profoundly from what he calls the “conventional Left
account” and, rather than rejecting it or accepting it in toto, I think it
needs some interrogating. I think the most important questions are:

Firstly,
Kliman uses a method of measuring the rate profit – the rate of return on
advanced capital – which he says is meaningful to most people and to business itself. Given that, a
discernable decline in the rate of the profit should have been a major concern
of business over the past thirty years or so and hotly debated in the business
press. I’m not aware of this, so why hasn’t it happened?

Secondly,
Kliman says that in order for a fall in the rate of profit to be actualised,
prices have to fall. But inflation has been the norm at least since the Second
World War. The only area of decreasing prices for Western consumers I’m aware
of, is in the realm of cheaper clothes and the reason for that is
super-exploitation of garment workers in countries like Bangladesh and Vietnam, not mechanisation. And mechanisation, according to
the theory, has to occur in order for prices to fall and the rate of profit to
drop.

Thirdly, I
don’t believe demand is so irrelevant to capitalist economic health as Kliman
says. Kliman is a dyed in the wool demand-sceptic. He claims the post-World War
Two boom was not due to pent-up consumer demand or government stimulus but to a
resumption in a high rate of profit. But why did this reinvigorated rate of
profit not kick in in the late ‘30s, when the US slipped back into recession as
government stimulus was temporarily withdrawn? The pre-conditions of a new boom
were present, as capital value had been destroyed utterly in the downturn of
the early ‘30s. So why did it take the Second World War to put the Great
Depression out of everyone’s misery?

Kliman
maintains that the final consumer is not as important to capitalist economic
health as most radical economists think. Businesses can and do sell to other
businesses and investment spending has risen much more markedly than
consumption spending in the US,
over the last 75 years. That is why the economy grows at all. He is also at
pains to point out that only with a very selective use of statistics, can you
demonstrate that real wages have fallen in the US since the 1970s. Using another
method of calculating inflation, Kliman says, wages have risen markedly. And if
you measure total compensation, including employer social security and medicare
contributions, they show an unmistakable rise.

It is
widely accepted, certainly not just by the left-wingers or Keynesians, that
consumer spending supplies an integral part of economic growth, nearly two-thirds of economic activity in the UK. And it is indisputable that real wages are falling now - by an eye-watering 8.5% in Britain since 2009, according the state Office for National Statistics.At the same time, consumption is
forming a large part of the headline rise in GDP, an increase that, in the
absence of wage increases, can only come from savings or borrowing. Thus, I
think you can safely conclude that consumer spending is vital for economic
health and an important component of the profits of the financial sector. Consumer
demand is, at the very least, part of the story.

You can’t buck the
market

But, in
spite of these reservations, I do think Kliman’s insights are valuable, because
he has realised something that many Left Keynesians and Marxists don’t want to
face up to. Namely, that capitalism depends for its vitality on periodic destructiveness
and, in this sense, you can’t buck the market. Keynesianism was predicated upon
ending this instability but failed, as shown by the large-scale recession that
occurred in the mid-1970s. There is a fascinating table on page 53 of Kliman’s
book that gives GDP statistics for all regions of the world. It shows that
economic growth was higher in every single region of the globe between 1950 and
1973 than it was between 1973 and 2008. In many places, after 1973, growth fell
like a stone. Post-1973, the growth rate in Japan,
Europe, Latin America and Africa plunged by
more than half. Yes, you can say post-war reconstruction petered out, but a
seismic economic jolt clearly occurred in the 1970s, which no amount of
neoliberalism, declaring war on organised labour, exponentially increasing
credit or providing government support to failing financial institutions, has
been able to correct. As Kliman points out, all of our current economic
malaises – slow growth, slowly rising wages, spiralling inequality, financial
instability and debt crises – date from the 1970s, not the 1980s. In other
words, from before the neoliberal era and the supremacy of Thatcher and Reagan.

In this
acceptance that capitalism’s problems stem ultimately from the 1970s and that
Keynesianism, despite the hype, could not overcome the internal dynamics of
capitalism, Kliman has an equivalent in Britain, the economist Harry Shutt.
Shutt isn’t a Marxist and doesn’t believe that falling profit is to blame,
rather he traces the malaise to the need to find investment outlets for an ever
increasing volume of funds (a ‘wall of money’) and a decline, in the digital
age, in the demand for large-scale capital investment. Nevertheless Shutt, too,
thinks that governments attempts to evade recurrent system crashes by
intervening with subsidies and debt guarantees, have only resulted in insipid
growth, more instability, spiralling debt and a “postponing of the evil day”.
To him, Keynesianism is the problem, not the solution. As with Kliman, Shutt
thinks that the corporate debt overhang is too great to permit sustainable
growth. Artificial stimulation, from the outside, can’t work.

The intractable problem is that a fervent desire to avoid a
fully-played out crash of capitalism is not limited to ruling elites or
policymakers. Ordinary people are now are locked in to the success of the
system, not just through their jobs but through pension funds invested on the stock
market. Nobody wants a crash and the perception that, in Shutt’s words,
“preserving the status quo was an end that could justify almost any means” is
not confined to the summit of society. If there is another crash coming – and
the feeling of The Endless Crisis authors and Kliman is that it’s inevitable –
then it’s a sure-fire bet that governments will attempt to quench it with
public money. If it proves too big for that then all bets are off as to what
will ensue.

The lesson
of his analysis, according to Kliman, is that new regulations or laws cannot
break with the laws of capitalist production. A “somewhat comprehensive
socialisation of investment” as Keynes called for, won’t change the fact that
banks still have to exist in a capitalist economy. “Investment decisions cannot be based on what would enhance
workers’ well-being or fulfilment of public policy objectives,” writes Kliman.
“… a bank that dared to pursue these goals would soon find that lenders and
investors would not supply it with the funds it needed.”

The
pessimistic conclusion, although Kliman would describe it as sober and
realistic, is that institutional structures don’t matter. Neither enterprises
controlled by their workers or state enterprises represent a rupture with the
laws of capitalism and will just reproduce its flaws. In order to transcend
those flaws, you need a society governed by new methods of production and
exchange. Yet, workers’ control, or worker self-directed enterprises, is
thought of by growing numbers of people as a cure for capitalism. It is to this
debate that I want to turn to, next.

About Me

Capitalism is not beautiful, said John Maynard Keynes. It is not intelligent, it is not virtuous and it not just. “But when we wonder what to put in its place, we are extremely perplexed.”
This blog is about the ideologies that mask the ugliness and injustice beneath the surface. And how our perplexity might be diminished.
You can contact me at idealogically@gmail.com